The law allows any one person to set up a non-profit corporation. I write this article because of the wide-spread misunderstanding about what “non-profit” really means. I can’t tell you the number of contributions made to non-profits because of a high-sounding name that causes people to think the company is religious, charitable, or educational. The internet seems to have made the problem even worse.
One person can set up a non-profit corporation. The company is not legally required to have members – even one!
Its name is not required to signal its purpose. I could set up the Distinguished Men of Christendom [“DMC”], and be a wholly undistinguished Muslim hermaphrodite. (I’m not, incidentally, but the point is that the name may be completely misleading, sometimes intentionally.)
The company must have a stated purpose. But nowhere is the organizer required to prove, or even state, how much of its energy is dedicated to that purpose, or whether it even accomplishes anything related to that purpose.
Finally, the Company can’t distribute its earnings as dividends. But nowhere does the law say that its owners and directors can’t get paid a salary that they deem to be reasonable. No one can object if my company, DMC, (For this example, DMC is my personal initials, to illustrate how self-serving a non-profit can be) pays me a commission for bringing in contributions, or a salary commensurate with my personal taste, whatever they may be. If I personally own the building the company occupies and charge rent that only I decide, I may get rich, while the corporation remains very poor, and legally “non-profit”.
A federal tax designation as a 501 (c)(3) organization requires forms to be filled out and questions to be answered about a company’s purpose. But even the IRS does not have the authority to judge the extent to which a non-profit works to the private benefit of its insiders, as opposed to its stated purpose.
I don’t mean to be Scrooge. But I do mean that you should assume that each non-profit is very different from every other, and many pay the people who run them. That is not a bad thing. But the terms “non-profit”, and “charitable purpose” are not the same. Understand, please, that I don’t mean this article to impugn all non-profits. But I do mean to suggest that when you get that e-mail or phone call soliciting your contribution, you should make no assumption from either the name of the organization, or from its non-profit designation.